7/30/1999 @ 12:00AM

How Microsoft tripped up on Sidewalk

What other way to explain the star-crossed performance of Sidewalk, the company’s most ambitious foray into the world of e-commerce?

Since its much-hyped launch in April 1997, Sidewalk has been a case study in excessive burn rate and diminished returns. One high-ranking Microsoft official, requesting anonymity, says Microsoft has poured hundreds of millions of dollars into the online property, which first surfaced in an internal memo leaked to the outside world in 1997. The memo described a series of online city guides providing local arts and entertainment listings designed to capture a healthy slice of the $66 billion local advertising market. Microsoft Chief Executive Bill Gates deemed the approach “friction-free capitalism,” but Nathan Myhrvold, Microsoft’s chief technology officer, was more direct. He spoke about the software giant’s intention of collecting a “vig” from its web site. Vig, or vigorish, is a gambling term for a bookmaker’s cut of the action.

Last week Microsoft sold its arts and entertainment guides to rival Ticketmaster Online-CitySearch for a 9% stake in that company that is worth $240 million.

But Microsoft has careened wildly off course in its pursuit of being the Internet’s middleman. It radically changed its game plan almost as soon as it opened editorial offices in ten cities (Seattle, San Francisco, Boston, New York, Chicago, Minneapolis, Denver, Houston, San Diego and Washington, D.C.). When revenue from ads didn’t come pouring in, Microsoft officials started trimming staff in January 1998. By last fall, they had turned Sidewalk into a glorified yellow pages-like service with little emphasis on local events.

Last week Microsoft sold its arts and entertainment guides to rival Ticketmaster Online-CitySearch
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for a 9% stake in that company that is worth $240 million. CitySearch will now handle entertainment listings and other local information for Sidewalk, effectively getting Microsoft out of the local content business. Microsoft will continue to pan for online gold with shopping guides and e-commerce tools that can be reached from the Sidewalk site.

Microsoft’s expensive bid to get into the local news business can now rest in peace, industry pundits says.

“They’ve driven a stake through the heart of their local content effort,” says Lisa Allen, a Forrester Research analyst and former Sidewalk employee. Allen, author of a recent report predicting the Microsoft-CitySearch deal, called Sidewalk “stagnating” and observed that “attrition outpaces hiring and new initiatives.”

“Microsoft constantly changed its strategy,” says Paul DeBenedictis, president of AOL Digital City–the largest online city guide. “And no amount of money and resources can help that sort of strategy.”

At the same time Microsoft was struggling to find its step with Sidewalk, Digital City and Ticketmaster Online-CitySearch were “laser focused,” according to Allen and others.

Digital City put a premium on “presenting top local stories and framing them within a context that explains how they affect the neighborhood,” DeBenedictis says. The service then retained its readers in 60 cities by encouraging them to share their comments in AOL’s ubiquitous chat rooms. (Not surprisingly, it was AOL’s success with digital discussion areas that helped turn it into the world’s most popular Internet service. Microsoft, by comparison, has struggled to foster online communities with MSN.)

CitySearch faced steeper odds. Without the backing of a major corporation, it had the daunting task of matching resources with AOL and Microsoft. Yet it was a trailblazer, and the introduction of Sidewalk “affirmed what we were doing,” says Charles Conn, chief executive of Ticketmaster Online-CitySearch in Pasadena, Calif.

“The new media business is in the midst of an existential crisis, trying to decide what it is uniquely good at.”

CitySearch held its own with a blend of information on auctioned items, watering holes, restaurants, nonprofit organizations, hotels, health clubs, community events, horoscopes, sporting events, maps and parking for scores of cities. However, it was CitySearch’s merger with Ticketmaster Online last year that marked a turning point. The deep-pocketed white knight provided the financial oomph necessary for CitySearch to compete with AOL and Microsoft before it went public in December 1998.

Faced with two entrenched opponents, as well as city-guide services from Yahoo!
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and Excite@Home
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, Microsoft eventually decided to ditch the content market and concentrate instead on business listings and e-commerce. That’s where the real money is to be made, according to Matt Kursh, business unit manager for MSN and the executive in charge of Sidewalk.

“We have super successful components in CarPoint, Expedia and Home Advisor that incorporate local content of various flavors,” says Kursh. “The new media business is in the midst of an existential crisis, trying to decide what it is uniquely good at. The area that holds the greatest promise for us is coming up with solutions for people who shop online.”

Microsoft “salvaged the situation nicely,” Forrester’s Allen says. “They’re now getting free content from CitySearch and focusing on what they do well.”

It was obvious to those in the publishing market what the software giant didn’t do well. “Everyone was worried that (Microsoft) would do with online listings what it did with operating systems,” says Rob Neill, online editor of the San Francisco Bay Guardian, an alternative weekly newspaper. “The concern was whether Microsoft could buy recognition, and readers, with its marketing might. To our relief, content is what matters and we won that battle.”